Banking system: onset of rise and development

On 20 March 1991, the resolution of the Verkhovna Rada of the Ukrainian SSR was adopted entitled «On Procedure of Enactment of the Law of Ukrainian SSR "On Banks and Banking Activity"», pursuant to which this Law took effect on 1 May 1991.

Said resolution declared ownership by Ukrainian SSR of the Ukrainian Republican Bank of the State Bank of the USSR, the Ukrainian Republican Bank (affiliate) of the State Commercial Industrial-constructional Bank «UkrPromBudBank», the Ukrainian Republican Bank of the Savings bank of the USSR, and the Ukrainian Republican Bank of the ForeignEconomBank of the USSR together with their network, computing centers, all assets, liabilities, as well as the Ukrainian Republican Department of Encashment of the State Bank of the USSR with the network of establishments and organizations subordinated to it.

The National Bank of Ukraine was resolved to be created on the basis of the Ukrainian Republican Bank of the State Bank of the USSR.

Article 7 of Resolution of the National Bank of Ukraine directed to establish no later than 1 November 1991 a procedure for issuing licenses to banker's establishments authorizing to fulfill transactions in foreign currency within the Ukrainian SSR and abroad and to reconsider all the issued licenses authorizing the fulfillment of these transactions, as well as to implement re-registration of all the banks, their affiliates, and other credit establishments located on the territory of Ukraine.

On 7 October 1991, the Statute of the National Bank of Ukraine (NBU) was approved by a resolution of the Presidium of the Verkhovna Rada of Ukraine. The NBU was acknowledged as a state establishment accountable to the Verkhovna Rada of Ukraine.

The administrative body of the National Bank is the Board, which

• considers the conditions of monetary circulation and develops propositions concerning the principal directions of state monetary-credit policy subject to approval by the Verkhovna Rada of Ukraine;

• sets the level of reserve requirements, the economic norms of the activity of commercial banks and interest rates on credits that are provided to banks;

• affirms regulatory documents related to the competency of the National Bank of Ukraine.

The main functions of the National Bank of Ukraine

In terms of its functions, the National Bank of Ukraine is the central bank, which pursues comprehensive state policy in the domain of monetary circulation, crediting and provision of the stability of the national monetary unit. It is, at the same time, the money issuer, the body of currency regulation, the body of bank supervision, is the bank of banks, the state bank, and the organizer of inter-bank settlements.

Being the central bank of the state, the NBU pursues monetary-credit policy, establishing and applying appropriate instruments. The National Bank keeps the national book of registration of banks, currency exchanges, and other financial-credit establishments. It represents the interests of Ukraine in relations with the central banks of other countries, international banks, and financial-credit organizations.

The National Bank of Ukraine enjoys the monopolistic right to issue money into circulation, as well as to issue national monetary marks (bank-notes, coins). Since 1992, the NBU has put into operation a money manufacturer in Luhansk‚ a bank-note factory in Kyiv‚ a manufacturer of bank-note paper in Malin. The Mint and the Central Depository have been built in Kyiv.

The provision of the economy with cash money is carried out through the network of regional departments of the National Bank in fulfillment of the orders of commercial banks.

It should be noted that prior to the establishment of the NBU, when only the republican division of the State Bank of the USSR was in operation in Ukraine, Ukraine had neither methodology‚ mechanisms and instruments to regulate the monetary-credit market, nor practical experience of applying them.

The National Bank of Ukraine is the basic body, which defines currency policy and implements it on the principles of general economic policy of Ukraine. Together with the Cabinet of Ministers, the NBU draws up the balance of payments of Ukraine; supervises the observance of the limit of foreign debt as affirmed by the Verkhovna Rada; defines the limits of foreign-currency denominated indebtedness of authorized banks due to non-residents; accumulates, preserves, and uses the reserves of currency values for the realization of the state's currency policy; issues licenses authorizing the fulfillment of currency transactions and decides about their abrogation; defines ways to establishing and using currency exchange rates of foreign pegged currencies nominated in the currency of Ukraine; and sets the rates of currency values nominated either in foreign currency or settlement (clearing) units.

Apart from these regulatory functions in the domain of currency policy, the NBU also fulfills controlling functions. Namely, it supervises the observance of the rules for currency transactions on the territory of Ukraine and ensures the fulfillment by the authorized banks of functions concerning the implementation of currency control.

The National Bank of Ukraine implements bank supervision over the observance by commercial banks of the banking legislation, the observance of economic norms set by the NBU and its own regulatory acts.

The National Bank of Ukraine is the bank of banks. With the view of maintaining the stability of the banking system and extension of its credit opportunities, it provides credits to commercial banks. These credits provide for the interim needs of banks and for crediting of special programs related to the reorganization and modernization of manufacturing, the development of particular sectors of the national economy, and the restructuring of the economy of Ukraine.

Short-term credits to commercial banks are provided through credit auctions. Also, collateral credit is put into practice.

As the state bank, the NBU arranges and implements through the banking system the cash servicing of the state budget of Ukraine. It is entrusted with the fulfillment of transactions with government securities. In 1993, the new mechanism of the cash servicing of the state budget was put into practice in Ukraine, which excludes the "automatic" crediting of state expenditures. Funding on account of the budget is carried out within the limits of available funds. In accordance with a decision of the Verkhovna Rada of Ukraine, the National Bank may provide credits to the central government without special preferences.

As per the Law "On Banks and Banking Acidity», the National Bank is not allowed to fund deficit of the state budget.

As the organizer of inter-bank settlements, since January 1994 the NBU has put into practice the automated system of inter-bank settlements with the utilization of advanced technologies. The system is a set of software and hardware means, which ensures interchange with electronic documents, their cross check, analysis and protection from illegal interference.

To ensure the functioning of this system, regional clearing chambers have been created in the Crimea and every oblast that are united into the all-country network of clearing chambers of Ukraine, with the Central Clearing Chamber in the city of Kyiv at the top.